In US economic data, housing starts fell by 1.6 per cent in November to a 1.028 million unit pace. Building permits fell by 5.2 per cent in November. Despite the mild pullback the housing sector continues to see healthy improvement. The Markit Flash PMI eased from 54.8 to 53.7 in December -- an 11-month low. A reading above 50 still signalled an expansion in activity. Across the sub-indices output and employment expanded at a slower pace.
European shares managed to stage a late rebound on Tuesday as the Russian rouble recovered against the US dollar and oil prices also bounced off 5½-year lows. Trading volumes were nearly 80 per cent higher than the average over the past three months. The FTSEurofirst 300 index rose by 1.9 per cent, the German Dax also gained 1.9 per cent, while the UK FTSE rose by 2.4 per cent. In London trade shares in BHP Billiton gained 3.3 per cent while Rio Tinto rose 4.2 per cent.
US sharemarkets fell sharply in the last hour of trade on Tuesday. A mild rebound in the oil price supported energy shares. The S&P energy sector outperformed rising by 2.4 per cent. Investors also bet on a more cautious tone from the US Federal Reserve ahead of the FOMC rates decision, which is released tomorrow. At the close of trade, the Dow Jones was down by 110 points or 0.6 per cent. The S&P 500 index was down by 0.8 per cent and the Nasdaq lost 57 points or 1.2 per cent.
US treasuries rose on Tuesday (yields lower) as the ongoing weakness in oil prices spurred demand for safe-haven US government bonds. Traders also awaited on the US FOMC meeting, which takes place over the next two days. US 2-year yields fell by 3 points to 0.548 per cent while US 10-year yields fell by 5 points to 2.071 per cent.
Major currencies were mixed against the greenback in European and US trade on Tuesday. The euro rallied from lows near $US1.2445 to highs near $US1.2560, and was around $US1.2485 in late US trade. The Australian dollar fell from highs near US82.70c to around US82.00 and traded near US82.10c in late trade. And the Japanese yen traded between 115.65 yen per US dollar to ¥117.65 and was near ¥117.25 in late US trade.
World oil prices bounced off 5½-year lows on Tuesday as traders continued to speculate on the likelihood of OPEC oil supply cuts. US options expiries also added to the volatility in oil prices. Brent crude fell by $US1.17 or 1.9 per cent to $US59.75 a barrel while the US Nymex crude price rose by US53c or 0.9 per cent to $US56.46 a barrel.
Base metal prices were weaker on the London Metal Exchange on Tuesday. The contraction in Chinese factory activity weighed on prices. Nickel lost 2.7 per cent while lead gave back 2.5 per cent. Other metals fell between 0.6 per cent-1.9 per cent. Gold fell with Comex gold futures down by $US13.40 an ounce or 1.1 per cent to $US1,194.30 per ounce. Iron ore fell by US50c to $US68.10 a tonne on Tuesday.
Ahead: In Australia, no economic data is released. In the US, CPI data and the FOMC rates decision is handed down.
Savanth Sebastian is an economist at CommSec.